Russian Yukos theft financed by China and linked to 5 year export guarantees

Ottomaton · Feb 1, 2005

From the Times Online

China has underwritten the Kremlin’s nationalisation of one of Russia’s major oil producers in a $6 billion (£3.2 billion) deal over supplies.
CNPC, the Chinese state oil company, agreed yesterday to lend $6 billion to Rosneft, the Russian state oil company. The loan, to be repaid in barrels of oil, will provide funds for the purchase by Rosneft of Yuganskneftegaz, the main oil production unit of Yukos.

China’s intervention in the Yukos affair is part of a sustained campaign in Beijing to secure improved access to Russian oil reserves. An extraordinary surge in China’s oil consumption over the past two years has created anxiety in the People’s Republic about access to sources of oil and gas.

Russian officials said that CNPC was making a pre-payment for crude oil deliveries from Rosneft. The state-owned oil company acquired Yugansk for $9 billion after its auction last year by the state in settlement of tax claims against Yukos.

Alexei Kudrin, Russia’s Finance Minister, said that Chinese banks made funds available to Russia’s Vnesheconombank for the benefit of Rosneft. The loan is in support of a five-year contract to supply some 50 million tonnes of oil to China.

For the Kremlin, the $6 billion loan will help the Government to normalise a transaction that is under attack in the US courts.

The management of Yukos has started bankruptcy proceedings in a Houston court and accuses the Kremlin of the illegal expropriation of Yugansk and a political vendetta against its jailed shareholder, Mikhail Khodorkovsky. Both Yukos and Mr Khodorkovsky’s Menatep Group have threatened to sue any purchaser of Yugansk, including the Russian Government, Rosneft and Gazprom, the utility that is merging with Rosneft.

The threat of legal action is unlikely to deter CNPC from its goal of securing better access to Russian oil. The company is not shy of investing in troubled situations and is the major investor in Sudan’s nascent oil industry.

Moreover, support of the dismemberment of Yukos in exchange for oil may be seen as an equitable settlement of a long-running Sino-Russian energy dispute that centred on the troubled Russian company.

Yukos, the leading Russian oil supplier to China, is expected to ship 4 million tonnes by rail this year. The company had for years lobbied to build a pipeline from its oil hub at Angarsk in Siberia to China’s refinery complex in Daqing. The Kremlin, fearing entrapment by the Chinese, opposed the route, preferring a link to a Russian Pacific port.

Russian officials threatened further action against Yukos. Sergei Oganesyan, head of the Federal Energy Agency said: “We need to take a decision on the sale of other Yukos assets.”

Steven Theede, the chief executive of Yukos, gave warning that jobs could be cut at the company, which had already lost some 200 staff in Moscow because of harassment by police and officials.Mr Theede said he was confident that Yukos would win its bankruptcy petition, due to be heard in Houston on February 14.
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This, apparently, is how the Russians intend to get around any legal liability regarding the financing of the theft. As a result of this series of events I will never invest in a Russian company again (I didn't have money in Yukos so this isn't sour grapes). I would urge anybody else to think long and hard before doing so themselves.

In an unrelated story, Lukoil, a Russian company I'd like to invest in if not for my previous injunction, is rebranding all of the Getty Oil gas stations in the northeast. IMHO, this is a really smart move and will build brand recognition for the country with the 5th or 6th largest oil reserves in the world (and the largest non-OPEC producer).

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Russian Yukos theft financed by China and linked to 5 year export guarantees

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Russian Yukos theft financed by China and linked to 5 year export guarantees

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